Self Directed brokerage

[Guest Bradbury Arnold]

We have a 401k plan that we are taking over that uses the MFS platform for investments but allows participants to have individual brokerage accounts. Not surprisingly, the only four people who have brokerage accounts are HCE doctors. The plan would like to eliminate the brokerage accounts but are getting resistance from some of the docs who have them, so they are asking for recommendations.

I have informed them that they could simply announce that they are no longer allowing these accounts, but short of that, I would like to recommend some alternatives as follows:

1. They could announce that no further brokerage accounts can be established in the future and grandfather the existing ones.

2. They can pass on administrative fees for the brokerage accounts to either all participants or just to terminees.

3. They can inform participants that once they terminate employment, they can no longer maintain the brokerage accounts.

I'm confident that they can implement both 1 and 2 - although I welcome any opposing viewpoints on that. However, I'm not certain that recommendation 3 is legitimate, but I think that it is. Seems to me that this is discrimination issue.

In reviewing the (a)(4) regs on this, I don't see any roadblocks. This is a brf and termination of employment is an excluded condition. All the effected people are HCE's so I don't see any effective availability issues.

Any input is appreciated - thanks.

[J Simmons]

1. They could announce that no further brokerage accounts can be established in the future and grandfather the existing ones.

Whoa! Take a look at 1.401(a)(4)-5 about how timing of an amendment itself can be discriminatory. At a point in time when the only grandfathered folks would be HCEs you'd close the door to any nonHCEs being allowed to set up brokerage accounts. Get opinion of ERISA counsel, in writing, before going there.

2. They can pass on administrative fees for the brokerage accounts to either all participants or just to terminees.

Better solution in my opinion than #1.

3. They can inform participants that once they terminate employment, they can no longer maintain the brokerage accounts.

While you can impose costs on terminated EEs that are picked up for current EEs, you might have a BRF issue here. Still like #2 best of the three.